Another Spending Showdown Looms

The federal government will shut down again if Congress can’t agree on a spending plan by this Thursday, February 8. That’s when the latest short-term funding bill, known as a continuing resolution or CR, expires. Negotiators have yet to reach agreement on how much to spend for the remainder of the current fiscal year, which ends on September 30. Major disputes focus on how much to increase defense spending, whether to include the same level of increased spending for non-defense programs, and/or whether to increase infrastructure spending as part of the hike in non-defense spending. Many other issues are looming: Dreamers/Deferred Action for Childhood Arrivals (DACA); hurricane/wildfire emergency funding; renewal of funding for community health centers; whether to include language to repeal or weaken the longstanding protections of the Johnson Amendment, and more. Although no agreement has been reached on any of the above, the House is scheduled to vote on Tuesday, February 6, on another continuing resolution to fund the government
through March 22. The White House has asked that additional funding, called “anomalies,” be included in the CR to help the IRS implement the new tax law and may request language to suspend the debt limit, because the Treasury Department believes its ability to borrow and keep the government running may run out. The Congressional Budget Office projected last week that the U.S. will hit its debt limit sooner than expected because the new tax cuts mean less revenues. It is unclear whether Senate Democrats and conservative House Republicans will go along with another short-term CR, or demand solutions and concessions to keep the government open while negotiations continue.

Federal FastView

2020 Census: The Administration reportedly has rejected a proposal to alter questions about race that would have provided greater clarity on the Latino population and people with roots in the Middle East or North Africa. The Census Bureau had previously concluded that the proposed questions could improve accuracy, specifically in diversity, and improve how people understand race and ethnicity. The questionnaire for the 2020 Census will retain the same questions on ethnicity as on the previous two decennial surveys.

Partial Reprieve for Community Health Centers: Funding for community health centers remains bogged down in congressional spending disputes, but the Health Resources and Services Administration (HRSA) is continuing to make some emergency payments to centers in Connecticut and perhaps elsewhere running short of funds. Congress failed to reauthorize the Community Health Center Fund before it expired at the end of September, and no new funds have been authorized since then. Speaking to the temporary funds provided by HRSA, Senator Blumenthal (D-CT) observed, “It’s really kind of half of a
Band-Aid and no way to run any kind of essential federal program … so Congress has to act. Congress has to do its job.”

New Withholding Rules Under the New Tax Law: The IRS issued a Notice to extend the effective period for existing W-4 forms to the end of February and permit employees to claim exemption from withholding for 2018 by using the 2017 forms. The Notice temporarily suspends the 10-day window for employees to provide new W-4s to reduce withholding allowances. It also provides an optional withholding rate on supplemental wages. Finally, the Notice makes clear that when no certificate is in effect, employers should make withholdings on periodic payments as if the person is a married individual claiming three
allowances.

Budget Process Reform Commission: Recognizing that the federal budget process is broken, proposed legislation would create a 23-person independent commission to study procedures of budget and federal expenditures with a goal of addressing longstanding problems in the federal budget process. The Commission would be required to conduct at least four public hearings, seek recommendations from experts, federal and state policymakers, educational institutions, and private organizations on ways to reform the budget process. It would be expected to submit a report to Congress recommending amendments to current
procedures. Members would consist of tax committee leaders, the Treasury Secretary, and the Office of Management and Budget Director.

Federal-State Budget and Tax Interplay

State lawmakers are now grappling with the uncertainty of the economy and policies in general as they formulate their state budgets. Twenty-five states, mostly in the Northeast, Midwest, and those reliant on oil and natural resource revenues, are facing budget shortfalls in varying degrees, ranging from small declines to major deficits that will require significant policy changes to resolve. For example, New York faces a $1.7 billion budget shortfall, its largest gap in more than five years, and Louisiana is looking at a $1 billion deficit. Every state (except
Vermont) must balance its state budget by fiscal year end, which is June 30 for most states, so they have little time to adjust to bring in new revenues and/or cut spending.

Adding further complications to balancing budgets are how state tax codes interact with the new federal tax law. A Tax Foundation report found, “Some states adopt large swaths of the federal tax code by reference; others use it as a starting point, then tinker endlessly; and still others incorporate federal provisions and definitions more sparingly.” As a result of the new federal tax law and this interplay with state law, several state governments will see increased revenues and some, including Montana and Oregon, should expect reduced tax receipts. Increased state
revenues mean state taxpayers will automatically be paying higher state taxes, and policymakers, many of whom are up for re-election, are proposing tax cuts. For instance, many taxpayers in Maryland may owe more in state and local taxes as a result of the new federal law, yet the Governor is vowing to find ways to avoid that consequence. Missouri’s Governor is proposing nearly $800 million in state tax cuts reportedly to balance out the interplay of the federal and state tax laws. Vermont economists estimate $38 million in additional revenues due to the tax law, but caution that the state is one of the least prepared states for the next recession.

Medicaid Work Requirements Challenged in Court

Shortly after Kentucky Governor Bevin received federal approval for a Medicaid waiver that includes a work requirement, he signed a preemptive executive order directing termination of the Commonwealth’s Medicaid expansion program affecting more than 400,000 persons should the work requirement or other provision be successfully challenged in court. His preemptive action did not ward off legal challenge as three nonprofits, the Southern Poverty Law Center, the National Health Law Program, and the Kentucky Equal Justice Center, recently filed a lawsuit against the U.S. Department of Health and Human Services (HHS) challenging the waiver based on inclusion of the work requirement. Medicaid, unlike other social services, is solely designed to provide health services and cannot be used to impose work or volunteer requirements, the plaintiffs assert. The lawsuit focuses on the scope of HHS’s authority, alleging that “authorization of work and community engagement requirements is categorically outside the scope.” Kentucky is one of ten states that have asked for work or volunteer requirements for Medicaid beneficiaries. Indiana received approval last week to require recipients to work or volunteer at least 20 hours per week.

Tiffany Gourley Carter of the National Council of Nonprofits explains the dangers of mandatory volunteerism as a requirement for Medicaid eligibility in this new video (that we promise is not a Tide ad).

Colorado Considers Expanding Endowments

A bipartisan bill in Colorado seeks to promote giving to support the ability of nonprofits and foundations to continue to meet the growing needs in the state. The Colorado Nonprofit Sustainability Act would create a tax credit for cash donations to endowments of charitable nonprofits and community foundations, providing greater charitable giving incentives for organizations in the state. Under the bill, donors would be allowed to claim a 25 percent tax credit for donations up to $20,000. Nonprofits would receive $4 for each dollar the state awards in tax credits. The recipients would be required to provide
verification of the donor’s identity and that the donation qualifies for the credit. Five other states (Iowa, Kentucky, Maryland, Montana, and NorthDakota) currently offer a tax credit for donations to charitable endowments. The Colorado Nonprofit Association is circulating a letter in strong support of the measure and inviting organizations and individuals to sign on to demonstrate broad support within the state.

Taxes, Fees, and PILOTs

Property Tax Measures Place Pressures on Nonprofits

With forty legislatures back in session (as of today), legislation introduced across the country could help and harm nonprofits. First the good news; a bill in Colorado seeks to provide relief to some religious organizations by eliminating ownership as a requirement to qualify for the tax exemption for property that is used solely and exclusively for religious purposes. The Church Property Tax Fairness Act reportedly is aimed at helping start-up churches that rent facilities before they can afford to build their own sanctuaries. A Kentucky bill would add language clarifying that residents of senior living communities owned by a purely public charity using income to further the mission of the organization should also be exempted from property tax payments. The issue is moving simultaneously with a lawsuit making its way through the Commonwealth courts. If not addressed statutorily, the door could be open to threats to property and other tax exemptions in the Bluegrass State. Less favorable, Nebraska’sGovernor is
proposing a refundable tax credit for property tax payments and the repeal of the personal property tax exemption. Nonprofits are concerned that the proposal would further exacerbate budget woes in the state, which will place additional pressures on charitable organizations to provide services without additional funding and perhaps placing nonprofit property tax exemption at risk in the future.

Advocacy on Purpose

“What’s YOUR policy?” In a recent email to members, Maryland Nonprofits asks this simple, but important question as a way of inspiring nonprofits to take the opportunity to focus on how they can advance their own organization’s mission
through advocacy as the State General Assembly kicks off its 2018 legislative session. The question, and how it’s answered, should be a high priority for all nonprofits nationwide.

The Maryland state association of nonprofits is committed to preparing its members for nonpartisan advocacy and taking steps to think through possible upcoming action. They stress that this is the time to ask practical questions, such as:

When do you sign onto a group advocacy letter?

What internal approvals are required for the organization to take action in a timely manner?

How do you budget time and other resources?

Maryland Nonprofits recognizes nonprofit leaders are crunched for time and already operating at capacity, and may falsely assume there is nothing left for advocacy. Therefore, in the message to members, Heather Iliff, President and CEO of Maryland Nonprofits makes clear recommendations: “We suggest putting your advocacy policy in front of your board of directors for a refresher, and if you do not yet have an advocacy policy, put together a small board committee to develop a draft.”

They feel (as do we) that advocacy should be a bedrock competency for all nonprofits. Maryland Nonprofits demonstrates how vital advocacy is and how simple it is to take these steps and make it priority: “At Maryland Nonprofits, our advocacy policy calls for us to survey our members each year, have our board approve annual policy priorities, and empowers me as CEO to make the day-to-day decisions on sign-on letters and support or opposition to particular
bills.”

So, every nonprofit in the country can follow their lead by reviewing your advocacy policies and procedures now, while you’re thinking about it and before an emergency hits!

IN THIS ISSUE

Federal Issues

Spending Showdown

Federal FastView

Census 2020

Community Health Centers

Tax Withholding Guidance

Budget Reform Commission

State and Local Issues

Taxes & Budgets: LA, MD, MO, MT, NY, OR, VT

Medicaid Work/Volunteer Requirements: IN, KY, US

Endowment Tax Credits: CO, IA, KY, MD, MT, ND

Taxes, Fees, PILOTs: CO, KY, NE

Advocacy in Action

Take the State of the Sector Survey

You can contribute information that can help translate your individual nonprofit’s experiences into a broad-based, compelling picture of the needs, challenges, and financial health of the charitable nonprofit community. Simply complete the Nonprofit Finance Fund’s “State of the Sector” survey. Once the data are collected and analyzed, we’ll all be able to use the new information to help our various stakeholders and tell our collective story. The key is having enough quality data, so please fill out the survey today!

In this “plan ahead” webinar, presenters will cover what you need to do to have a successful voter engagement campaign in 2018 and when you need to do it. Register Now!

Worth Quoting

“Congress is weaker than it has been in decades, the Senate isn’t tackling our great national problems…. Both parties — Republicans and Democrats — are obsessed with political survival and incumbency.”

“Tax policies may not affect how some people give at all – especially extreme altruists or misers. But the new law will probably affect most typical donors.”

- Patrick Rooney, associate dean for academic affairs and research at Indiana University Lilly Family School of Philanthropy, quoted in Charity and taxes: 4 questions answered, The Conversation, providing a researcher’s perspective that average American taxpayers may donate less to charitable organizations due to the loss of the charitable tax incentive as a result of changes in the new federal tax law.

“The pollsters tell us we’re a divided nation, a mantra endlessly repeated in the political media. But in reality, when it matters most, Americans don’t sit on their hands. They reach out and help, without caring how someone else voted in the last election. That’s what will always make America great and forever united.”

- Gary Abernathy, America’s charitable instincts know no political divide, Washington Post, February 2, 2018, providing an inspirational story of the American instinct for aiding fellow citizens without regard to partisanship or credit, an instinct that is reinforced through the protections of the 1954 Johnson Amendment that keeps charitable nonprofits free from partisan politicking.

“I am especially grateful that this plan did not harm our [state’s] charitable giving incentives. The federal tax reform package passed at the end of 2017 will probably have a negative effect on giving. By maintaining the incentives to give in Oklahoma by not capping charitable giving, we can continue to expand our generosity through philanthropy.”

- Marnie Taylor, President and CEO, Oklahoma Center for Nonprofits, news release, January 22, 2018, joining with the business community in endorsing the Step Up Oklahoma Plan, legislation designed to address state budget challenges while retaining the state charitable giving incentive. See also, Taylor’s recent op-ed, Legislature Has Golden Opportunity to Address Budget This Session, February 2, 2018.

Federal Tax Changes May Prompt State Tax Overhauls, Elaine Povich, Stateline, January 18, 2018, reporting on the challenges and opportunities for state tax revisions resulting from the new federal tax law because state taxpayers in the majority of states will see hikes in their state tax liabilities due to of the repeal of many deductions and other revisions.

IRS Can and Should Block “Charitable Contribution” Schemes, Steve Wamhoff, Institute on Taxation and Economic Policy, January 25, 2018, expressing doubt about the legality of state proposals to allow taxpayers to avoid the federal tax-law caps on state and local taxes (SALT) by creating tax credits for donations to state-run charities that could be applied to cancel state taxes, but claimed on federal tax filings as uncapped charitable donations.

The number of years it has been (1997) since Congress enacted appropriations bills to fund the federal government prior to the beginning of the fiscal years and without resorting to passing short-term spending bills, known as continuing resolutions or CRs. The federal government is currently operating under the fourth CR since the beginning of FY 2018 that started on October 1, 2017.